Company Registration in Cyprus: Advantages and Pitfalls
Even though forced to abandon its formal offshore status after the accession to the EU, Cyprus has retained its appeal for many businessmen. Today it is one of the friendliest locations for doing business in the EU.
Around one thousand new companies are set up here every month. The key is to success is simple: preferential business-focused tax treatment. This article offers a detailed overview of the peculiarities of maintaining a company in Cyprus.
Why an increasing number of businessmen are incorporating companies in Cyprus?
Cyprus applies one of the most liberal tax policies in Europe. Business owners can expect a zero tax on income from:
- Transactions with securities
- Re-registration of real estate
- Operations of subsidiaries and branches
The local government took every step to encourage businessmen not only to do business on the island but also to live there. In addition to business prospects, Cyprus boasts low technical maintenance costs, especially in comparison with other European countries.
Benefits of company incorporation in Cyprus
We have highlighted the basic advantages of company registration in Cyprus:
- Full European Union member – option to carry out activities in any EU state
- One of the lowest corporate tax rates in Europe – a mere 12.5% on net income
- Low business arrangement costs
- A great number of treaties with other countries for the avoidance of double taxation
- Option to open an account in a European bank
- Option to set up the company and its bank account in one country
- Certificate of tax residency issued
- Cyprus is not an offshore jurisdiction
Peculiarities of an LTD company in Cyprus
A company is considered a “resident” when most of its directors are residents of Cyprus and hold regular meetings in Cyprus. Only resident companies can benefit from double taxation treaties.
Taxes and audits in Cyprus
Companies in Cyprus must submit the following each year:
- Tax return
- Financial statements with an independent auditor’s report
- Financial statements in Greek
- The annual report containing information about shareholders, secretaries, and directors
The corporation tax is 12.5%.
The corporate tax is paid by resident companies on their profits from any commercial activities gained both in Cyprus and abroad.
Non-resident companies are subject to corporate tax on the income generated in Cyprus. But non-residents are ill-treated by banks and cannot enjoy the benefits of double taxation agreements.
Income from securities transactions, dividends, and interest in non-core activities are exempt from corporation tax.
Special tax treatment IP BOX
Cyprus companies gaining profits from the ownership of intellectual property (IP) have the option to optimize their taxes in Cyprus and decrease the income tax by 2.5%.
Thus, 80% of the profits obtained from IP ownership can be exempt from corporate tax while the remaining 20% are subject to the standard rate of 12.5%.
The concessions are provided under the condition that the Cyprus company participates in the creation of such intellectual property rights and that its core activities are associated with that IP.
Certificate of tax residency in Cyprus
This certificate confirms the status of a Cyprus tax resident and serves as proof of the company paying taxes in Cyprus. Cyprus companies are considered residents by default.
The location of company management and controls is key to determining the tax residency. The main requirements for obtaining the certificate include:
- The company management must be located in Cyprus
- If the company is represented by an attorney under a power of attorney, the same must contain a specific list of authorities (not a general but a special power of attorney is required)
- Companies incorporated over 1 year ago must submit financial statements
SBSB lawyers will be happy to help you register a company, be that in Cyprus or in other jurisdictions. We will formulate an optimum solution customized to your needs and specifications. By the way, you can get a free legal consultation by joining our Telegram chat.